Uber’s Path to $70 Billion Won’t Be Kind and Gentle

It will be a challenge for Uber to repair its image and conduct damage control while continuing to grow globally with an eye on going public.

— Andrew Sheivachman

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The new chief executive of Uber Technologies Inc. is on a crusade to repair a corporate reputation that’s been badly damaged by scandals over its treatment of women and broader corporate culture. Dara Khosrowshahi even apologized after London’s transport regulator revoked Uber’s local license because of failures to run proper background checks on drivers and report alleged crimes.

All this stokes hopes for a kinder, gentler Uber; one ready to seek a public listing to capitalize on a monster paper valuation of up to $70 billion.

It’s going to take more than nice words to get to that point, though. Despite all the wailing and gnashing of teeth, the stand-off with London mayor Sadiq Khan looks solvable. What is less clear is how the new boss fixes a thornier, and much more expensive, problem: how Uber categorizes its drivers.

No one really knows yet whether Uber’s new boss, as well as the deeply divided board that oversees him, is really prepared to change the company’s way of doing business. Under bombastic founder Travis Kalanick, it expanded rapidly by arguing that its status as a mere piece of software to connect drivers with riders meant the old rules on everything from tax to permits didn’t apply.

Case in point: Uber is in front of an employment tribunal in London this week to appeal a decision that would make it give U.K. drivers more rights like overtime, holiday and sick pay. The judges decided last year that Uber drivers weren’t self-employed and deserved so-called “worker” status, an in-between category in Britain. In another U.K. legal case, Uber’s tax arrangements are being challenged, namely a structure by which it allegedly uses a Dutch entity to minimize value-added tax.

Will the new warm and fuzzy Uber be willing to revamp practices that actually affect the bottom line? Net revenue grew by double digits to reach $6.5 billion last year, but losses totaled a massive $2.8 billion, in part because of expanding operating costs and subsidies paid to drivers. Uber’s costs are simply not covered by the commissions they charge drivers.

Helping Uber reach sustainable profit means thinking carefully about where and how it operates. It has already exited China and Russia,where it was losing out to competitors. But Khosrowshahi needs to stop skirting regulatory obligations in the places where it does want to be, even if that adds cost at first.

On employment, I’ve argued previously that Uber could adopt a model in some countries where it offers drivers the choice of being self-employed or traditional employees. While this would certainly add to expenses, it would be a more sustainable legal basis in countries where social welfare is based on state-funded healthcare and retirement. It’s unrealistic to think that Uber can side-step these deeply entrenched systems forever.

Some might argue that adding yet more cost to Uber would raise fundamental questions about its business model. But it only has to beef up its worker protections in markets that demand it. Not everywhere is like Europe. Besides, many drivers don’t want to be Uber employees anyway since they want to be flexible.

Khosrowshahi has a lot on his plate at the perpetual crisis machine that is Uber. But it would be a mistake to focus only on changing the company culture, as horrible as that has been. Tackling worker rights would no doubt mean a more realistic assessment of its value. If the new guy really wants to extend the hand of friendship, he shouldn’t forget his drivers.